What is Escrow?

Escrow is a financial arrangement in which a neutral third party holds money or documents on behalf of a buyer and seller until the conditions of a transaction are met.

In real estate, escrow has two distinct meanings. The closing escrow holds the buyer's deposit and the seller's deed until the transaction conditions are fulfilled, then disburses funds and registers ownership. The mortgage escrow account (mainly US) collects monthly amounts from the borrower for property taxes and insurance and pays them when due.

Escrow accounts protect both sides: the seller gets paid only when title transfers; the buyer pays only when the property is delivered free of encumbrances. The escrow agent is bound by written instructions and personal liability.

Example

A US buyer wires a USD 20,000 earnest-money deposit to an escrow company; if inspection reveals undisclosed defects within the contingency period, the deposit is returned, otherwise it credits to the down payment at closing.

Related terms

Closing Costs

Closing costs are the various fees and expenses — beyond the property price — paid by buyer and seller at the completion of a real-estate transaction, typically 2–5% of the purchase price.

Title Insurance

Title insurance is a one-time premium insurance policy that protects property buyers and lenders against financial loss from defects in the title to the property — such as undisclosed liens, fraud, or competing ownership claims.

Appraisal

An appraisal is a professional, independent estimate of a property's market value, conducted by a licensed appraiser, used by lenders to size mortgages and by buyers and sellers to set prices.

Private Mortgage Insurance (PMI)

Private mortgage insurance is an insurance policy required by US lenders when a borrower puts down less than 20% on a conventional mortgage, protecting the lender (not the borrower) against default.

Frequently asked questions

Is escrow required?+

For closings, yes in most jurisdictions; for mortgage taxes/insurance, often required when LTV exceeds 80%.

Who pays the escrow fee?+

Usually split between buyer and seller per local custom; negotiable in the contract.

Can I waive a mortgage escrow account?+

Some lenders allow it for borrowers with strong credit and lower LTV, often for a small fee.